Money manager Robert Kleinschmidt thinks twice about companies that have been beaten up by the market mob.

    Robert Kleinschmidt describes himself as a contrarian, but the thing that strikes you about him immediately is that he's a kidder. He likes steering his analytical meetings with jokes, showing off his acid-tongued wit whenever there's a chance.

"There's too much wine in Europe," says one of his portfolio managers during a discussion about commodities.

"And too much whining," Kleinschmidt fires back.

One thing that characterizes everybody at his firm, Tocqueville Asset Management LP, where he is president, CEO and CIO, he says, is that they all have an iconoclastic streak and a tendency to question authority, whether the question is economical, cultural or political. "When I read political pundits, for example, say with such certainty, when Karl Rove resigned, and I listen to them deconstruct the Rovian era in the White House, I ask, 'How do they know that?' 'What makes them think they understand what goes on behind closed doors? How do they trust the sources they got?'"

His intuition about market psychology is one of the reasons some analysts are fascinated by Kleinschmidt, who has a reputation for picking out-of-favor or beaten up sleepers in the stock universe, keeping a keen eye not only on the cold abstract numbers to reveal the secrets of a company's success-but also on the trickier question of how investor sentiment might have unfairly smacked a stock's price around. His sense of these "animal spirits," a phrase he attributes to John Maynard Keynes, leads him to gut decisions that might make some scratch their heads.

To wit: He recently bought a big stake in biotech company Amgen, about the same time several analysts were slashing their ratings to "sell" following a slew of FDA health warnings and Medicare reimbursement cuts on the company's blockbuster anemia drugs. In the past, he has gone for unloved names like Schlumberger when they were in the doldrums to watch them shoot up. He still holds onto oil company Murphy Oil Corp., his top holding, whose stock price has shot up from under $20 in 2000 to its current hovering space of around $60. Though he planned on paring it back, which he often does when he feels a sector has run its course, today he thinks it's a perfect acquisition target with its interesting collection of assets, he says.

But his sense has paid off handsomely more than a few times, and earned his Tocqueville Fund a five-star rating by Morningstar. The fund tracker puts his five-year annualized return at 16.6% through Aug. 24, 2007, whereas the S&P 500 turned in 11.5%. From January 1992, around the same period Kleinschmidt arrived at the firm, the fund had a 12.5% annualized return, says Morningstar. (It is now worth about $485 million, and the firm as a whole manages $6 billion.)

One of his biggest successes in the past few years has been the metals and mining area, which he began buying in 2002 and 2003. Later on, he moved toward the maligned technology sector, buying companies such as Microsoft and Intel when they were being dismissed as growth stocks that were no longer growing (now the pendulum has swung back, and they have recently popped up in a lot of value portfolios).

More recently, a constellation of drug companies have appeared in Tocqueville's SEC filings, right about the same time that naysayers have decried the empty drug pipelines, the threat from generic medicines, and a clutch of safety warnings about the adverse side effects of Big Pharma's superstar drugs. And, though Kleinschmidt hasn't bought anything in it yet, he even thinks its time to start doing homework on the housing sector. Housing!

"Why?" he asks. "Because everybody hates them."

How can a successful money manager be so counterintuitive? For one thing, he's got time on his side. His portfolio has a three-to-five-year time horizon, and he doesn't want to own stocks unless he thinks they'll double over that five years. If he thinks he's made a mistake (say, when he bought insurance company Conseco), he usually hopes to dump it within a year.

Kleinschmidt also prefers dealing with high-net-worth investors, whom he thinks are less concerned with style boxes and more willing to enjoy the ride. The goal is more about capital preservation, he says, rather than hitting the balls out of the park and beating the market in the best of times.

"When you're a well-experienced investor, you've seen so many things come down the pike that represent the new and better way to make money and they all fall on their face ... as hedge funds are falling on their faces right now. And when you see that enough, unless you're not paying attention, you become very skeptical of the consensus viewpoint."

Kleinschmidt, a father of four (including a 28-year-old and a 5-year-old) hails from Oshkosh, Wis., a town known for its kids clothes and squeezed between Lakes Winnebago and Butte des Morts, a good launching pad for this bass fisherman-cum-fly fisherman and part-time Green Bay Packers fan. After attending the University of Wisconsin, he migrated east in the early '70s to college in Massachusetts, and eventually headed to New York City to work toward a Ph.D. in economics at Columbia, though he didn't finish the dissertation.

"I'd like to tell people I didn't finish my dissertation," he says. "But the truth is I didn't start my dissertation."

In the meantime, he taught at a few institutions, including  Marymount Manhattan College. He even taught graduate students at Adelphi University on morning commuter trains, hustling up to 125th Street some mornings to catch the outbound commuter railroad when it was still pitch black outside-in the 1970s.

"I would have my own train car and have a blackboard and a podium and a microphone and teach economics for an hour on the train," he says. But a career in academia was not in the offing. He was too poor to live on a teacher's salary in New York. "The other thing I can say about my academic career is that at the end of the day, professors were not exactly the babe magnet that I hoped they would be," he joked.

And he was humbled after encountering some of the geniuses in his graduate math courses. "I learned that there is a yawning gap between smart and 'math smart,'" he says. "These guys could hold multi-step proofs in their heads along from the beginning to the end, and I couldn't do that. ... So that and the lack of money helped me reach the decision to go down to Wall Street," where, he can't resist adding, "you didn't have to be so smart."

After cutting his teeth at institutional money manager David J. Greene & Co. for 13 years, he went to Tocqueville in 1991.

Among the bigger successes his team has scored was in the early 2000s, when the fund began making its metal and mining plays, in particular Phelps Dodge Corp., Newmont Mining, International Nickel, and Teck Corp. (now Teck Cominco Ltd.). These positions, most of which he has since divested, were great choices, he says, because capital constraints in this industry had kept a conservative generation of managers from starting a rapid wave of new projects (taking lessons from those in the past whose heads had rolled for being overachievers), and when the demand started to go through its cyclical upswing in the 2000s, the supply was lacking, and prices rose.

"I think it was one of the more obvious investment themes in my career," he says. "It was quite obvious because metals had been starved for capital. Even if you could come up with a good project that could earn 10%, 12%, 14% on equity in the late '90s, who was going to get excited about that when you were being promised 100% returns on equity by simply putting up a Web page?"

"This is where we added something that the typical value manager did not see," he continues. "We went through a number of years where the prices of commodities went up and these guys sat on the cash. They didn't start to build new greenfield projects, they didn't acquire other companies. They just paid down their debt and waited because they didn't believe the prices. ... Clearly in my mind there's nothing quite so obvious that's hitting me over the head right now."

However, he does think that drugs make a worthy new poster child for an unfairly abused sector, and he's bulked up on pharmaceuticals in the past year, adding names such as Bristol-Myers Squibb Co., Johnson & Johnson, Novartis AG, Sepracor Inc. and Amgen and doubling his stake in Pfizer Inc. (Though some of the new names in the portfolio have come from the recent merger of the fund with another portfolio the firm acquired a few years ago.) He says that despite some issues that the pharmaceutical sector has had with sagging pipelines and regulatory roadblocks, drugs will always fight back and show redoubtable strength.

"This could be the bias of my generation-who have always felt this way one way or another-but my feeling is that drugs are part of the solution, they're not part of the problem to health care."

And he says that, in the bigger picture, analysts are generally too ready to throw in the towel on drug companies once they sniff an empty pipeline. Kleinschmidt replies mordantly: "What we've found is that-surprise, surprise-managements aren't oblivious to this any more than the analysts are. ... It's like the worst case gets priced in. And I'm not convinced that that's logical. And we've had a lot of success betting that drug companies can alleviate the situation more quickly than analysts think."

Because he eschews style boxes, Kleinschmidt is also willing to go into smaller-cap realms or even into growthier stocks if he can, as long as he thinks they'll meet his standards of five-year growth. His small names include cancer drug company Pharmion Corp., medical-device-maker Thoratec Corp., and reinsurance company IPC Holdings.

"I like names where there isn't any real sell-side support," he says. "These names are not so much out of favor. They are favor-less."

Though he learned a lot at David J. Greene, he says that the firm's institutional focus was less appealing, a realm where consultants pigeonhole managers into style boxes to create a level of statistical certainty where he thinks none really exists. Does he find that a problem among financial advisors as well?

"There was a trend that I think culminated in the late 1990s where everybody felt they had a Chinese menu approach to investing. You had to have one from Box A, two from Box B, three from Box C. But I think the experiences of the last seven or eight years or so with financial advisors who have prospered during that period is that they may simply want a manager who knows how to make money or preserve capital."